Moody’s Ratings announced on August 13 that it has upgraded Pakistan’s credit rating to ‘Caa1’ from ‘Caa2’, reflecting an improvement in the country’s financial position. The outlook for the Government of Pakistan was also revised to stable from positive.
The upgrade applies to Pakistan’s local and foreign currency issuer and senior unsecured debt ratings. Under Moody’s scale, a ‘Caa’ rating signals poor standing and very high credit risk, but the shift to Caa1 places Pakistan at the higher end of that category.
According to Moody’s, the move reflects Pakistan’s stronger external position, supported by reforms implemented under the International Monetary Fund’s (IMF) Extended Fund Facility. The ratings agency noted that while the country’s foreign exchange reserves are improving, it still relies heavily on timely financial support from official partners.
The stable outlook was attributed to balanced risks, with potential for faster-than-expected improvements in debt servicing and the external profile. However, Moody’s warned of possible delays in reforms that could undermine external stability.
Over the past year, Pakistan’s external position has improved, with expectations for gradual progress as IMF-led reforms continue to secure financing from bilateral and multilateral partners. Moody’s highlighted that Pakistan has met its external debt obligations in FY2025 and is projected to do so in the coming years, provided IMF reviews are completed on time.
The agency pointed to Pakistan’s expanded financing options, including a $1.4 billion IMF Resilience and Sustainability Facility and a ten-year World Bank partnership framework worth $20 billion. Despite these developments, Moody’s stressed that the country’s reserves remain insufficient to fully meet its obligations, with external financing needs estimated at $24–25 billion annually in FY2026 and FY2027.
It cautioned that any reform setbacks or loss of financing support could cause a sharp deterioration in the sovereign’s external position. The agency also cited Pakistan’s history of incomplete IMF programs due to governance weaknesses, institutional challenges, and political instability.
